Learning and Work Institute responds to Autumn Statement

23 November 2016

Today’s Autumn Statement sets out the first official assessment of the economy and public finances since the EU referendum, alongside modest new spending commitments targeted at raising productivity and supporting ‘just about managing’ households. The significant weakening in the economy post-referendum, however, has limited the government’s room for manoeuvre – with borrowing fully £90bn higher over this Parliament as a consequence of the weaker economy.

This response focuses on three areas: employment and skills, welfare and devolution.

Employment and skills

The Autumn Statement announces a welcome rise in the National Living Wage, to £7.50, and a rise in the Apprentices rate to £3.50. This will give a much-needed pay rise to over one million low paid workers. However, raising the wage floor is not enough on its own if we don’t also address the drivers of low pay and low productivity in our economy. It is welcome that the Statement also announces a new £23 billion National Productivity Investment Fund, that will prioritise investment in transport, digital communications, research and development, and housing. However we are disappointed that the Fund does not recognise the central importance of skills and training in solving the UK’s productivity problem and in raising living standards. We would like to see the Fund extended, to allow for targeted investment to improve our skills infrastructure – including in-work support, basic skills and technical skills.

Overall, the OBR has taken a relatively positive view of growth– with its growth forecasts for this year through to 2019 being above the consensus amongst independent forecasts. The OBR is projecting an increase in unemployment of 238,000 on current levels by the end of 2018. This is very similar to L&W’s expectation of an increase of 254,000. Against this backdrop, it is disappointing that the government has not announced any additional investment in Jobcentre Plus or new employment programmes to help tackle this expected rise in unemployment.

Welfare

The Autumn Statement announces a reduction in the ‘taper rate’ of Universal Credit, which means that working claimants will in future only lose 63p of Universal Credit instead of 65p for every pound that they earn above their ‘work allowance’ (the amount that claimants can keep without any reduction in UC). This is a welcome, if modest, change – boosting incomes of low-income workers by £570 million by the last year of this Parliament. However, this reinstates just one tenth of the huge cuts in Universal Credit announced at last year’s Budget – which will take £5.4 billion from low income families, mostly workers, compared with the current system.

The Autumn Statement also includes a welcome overhaul of the government’s failed cap on welfare spending, which we called for after the March budget. Under the old cap, the government was expected to remain within a cash limit set in 2015 for spending on most non-pension welfare. However, it was set to breach the cap in each and every year of this Parliament – with the shortfall forecast to rise to £8.2 billion a year by 2021. Under the old rules, this would have required further welfare cuts on a scale similar to those seen in the last Parliament. Instead, the government has effectively reset the cap to reflect the current forecasts for welfare spending – allowing it to ignore the shortfall and fund the reversal of a number of welfare cuts. In addition, the cap will now only be assessed in 2021 rather than annually. This is very welcome and should remove any need for further welfare cuts in this Parliament.

Devolution

Finally, the Autumn Statement contains welcome news on devolution, with confirmation that the government will go ahead with its third round of Growth Deals, with up to £1.8 billion in funding set to be devolved to Local Enterprise Partnerships, including skills funding. The Autumn Statement also confirms, after much to and fro, that Greater Manchester and London have secured devolution of the Work and Health Programme – although this remains subject to agreement on co-funding. We estimate that this will be worth around £75 million to London and £30 million to Greater Manchester.

Commenting on the Autumn Statement, Tony Wilson, Director of Policy and Research, said:

“Today’s Autumn Statement confirmed the scale of the challenges that the government will face over the next few years – with lower growth, higher unemployment and higher borrowing. Given these headwinds, it is welcome that the government has focused on raising productivity and supporting lower income households. We welcome the measures announced today, but would like to see them go further – with the new National Productivity and Infrastructure Fund extended to include investment in our skills infrastructure; and with more action to address the £5 billion cut in Universal Credit announced last year. Without this, for many people, today’s announcements will feel like jam tomorrow.”